Year In Review: ETFs Defy Stereotypes In 2008

January 07, 2009


Assets At BGI, Rydex Slip In 2008

Overall, industry assets for all U.S.-based ETFs gained some $50 million in December from a month earlier as a result of improving market conditions and continued inflows. That pushed year-end totals to $534.6 billion, less than in 2007 when stronger first-half market performance helped push assets past $617.7 billion.

BGI and SSgA combined to dominate asset numbers among sponsors with a total of $414 billion at the end of December. But while BGI's assets slipped by more than $75 million from 2007 to $254.6 billion, SSgA's actually showed a slight gain to $159.5 billion.

The top five sponsors finished the year with double-digit asset levels. Of those, PowerShares also slipped in 2008, while ProFunds—through its white-hot ProShares ETFs unit—was clearly the biggest gainer.

Not only did ProShares' ETF assets more than double to $20.5 billion in 2008, its net inflow soared to $20.4 billion. A year earlier, ProShares had less than $8 billion inflows. For December, it had net inflow of $3.5 billion.

By comparison, the firm's big rival in the inverse ETF field had much smaller numbers. Rydex recorded $4.2 billion in assets at the end of 2008 (versus $5.5 billion in 2007) and net inflow of $148 million last month. Also, the ETF sponsor ended the year with $101 million in net outflow as opposed to 2007's net inflow of nearly $1.6 billion.

Interestingly, Direxion—a new entrant into the inverse and leveraged field—produced $496 million inflows in December. It ended 2008 with $896 million in assets.

In ETNs, two firms dominated both asset totals and inflows. Those were Barclays Capital, a sister unit of BGI, and Deutsche Bank. But the latter as the newer competitor clearly recorded the most growth during a year of decline for that marketplace. (See tables below.)

Where The Money's Going

It's important to note when reviewing these industrywide numbers that top-performing bond ETFs was the leading style category to realize net gains in assets last year. But they weren't enough to overcome much larger totals for stock funds, which fell sharply from 2007 levels. Currencies were flat on the year.

Despite those losses in assets, both domestic and international stock funds dominated net inflows into ETFs in 2008. The two combined for inflows of more than $35.6 billion in December and almost $144 billion (of $180.4 billion total for all categories) in 2008.

Top Funds Take Divergent Paths

The biggest ETF is still the SPDR Index 500 (NYSE: SPY) at $93.9 billion in assets. But that was basically flat from December 2007's $99.4 billion total. In fact, the much smaller iShares S&P 500 Index (NYSE: IVV)—which tracks the exact same benchmark—shed more than $3 billion to $15.7 billion during 2008. (IVV actually rebounded from generating net outflow the year before to gaining $5.3 billion net inflow last year.)

But it would still take the combined assets of the four next-biggest ETFs to reach SPY's war chest. With SPY's better-than $16.3 billion haul in December, the popular fund wound up the year with slightly more inflows ($34.6 billion) than in 2007.

An even harder-hit stock ETF last year was the iShares MSCI EAFE Index (NYSE: EFA). But it was the second-biggest gainer in terms of collecting net inflows in December ($2.9 billion) and finished the year with $1.7 billion on the positive side of flows.

It's worth noting, though, that with total return losses of more than 40% in 2008, EFA's asset and inflow totals were way down from a year earlier. So were several other funds that were slammed by the market, including the iShares MSCI Emerging Markets Index (NYSE: EEM) and the PowerShares QQQ (Nasdaq: QQQQ).

But all of the 10 biggest ETFs managed to stay above water in 2008 in terms of money flows. And the biggest loser of the group in 2007, the iShares Russell 2000 Index (NYSE: IWM) had an almost 180-degree turnaround with net inflow of $5.6 billion last year.

The picture wasn't all positive, however. Some 176 ETFs had net outflow in 2008, up from 121 a year earlier. Part of that 55-fund difference can be traced to sheer numbers—there were 112 more ETFs last year compared to 2007.

Also, less than half of ETFs on the market at the end of December 2008 had more than $100 million in assets. In such a highly fragmented market, it's not surprising that a rise in consolidation and closings of ETFs in the past 12 months left many smaller funds experiencing trouble attracting more investment dollars.

Trading volumes for ETFs were off the charts in 2008. Just less than $25 trillion worth of ETF trades took place on U.S.-based exchanges during the year, which was 70% greater than 2007.

By contrast, U.S. equities (ex-ETFs) volume increased just 10%. On a shares traded basis, ETF volumes increased by 123%, compared to a rise in U.S. equities volume of 37% (not counting ETFs).


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